Mobileye is car industry’s ‘iPhone moment’

SAN FRANCISCO (MarketWatch) — Mobileye NV shares rallied Tuesday after underwriters initiated coverage of the stock with glowing reviews, generally regarding the company’s active safety technology as the new disruptive force in the auto industry.

One analyst called the stock the car industry’s “iPhone moment,” but at least one expressed concerns about the stock’s lofty valuation.

Shares of Mobileye
US:MBLY
rose 8% to $41.25 on the heaviest volume since its first day of trading. More than 6.7 million shares had exchanged hands by mid-afternoon Tuesday, compared with 13 million on the stock’s first day of trading on Aug. 4. Shares reached an all-time high of $41.69 earlier in the session.

Mobileye

The Jerusalem-based company makes a camera-based system called the EyeQ that’s bundled with proprietary software and chips to help drivers avoid accidents.

Morgan Stanley, one of the lead underwriters for the IPO, initiated coverage with an “Overweight” rating and a price target of $46, calling the company “the only pure play on two of the fastest growing and most powerful trends in the auto industry today — autonomous cars and software.”

In a research note, Morgan Stanley analyst Ravi Shanker said he expects about half of all new cars sold worldwide by 2022 to have some sort of advanced driver-assistance or autonomous system. Mobileye has about 80% of the vision-system market now, with sights on 237 car models from 20 manufacturers by 2016, he wrote.

While Morgan Stanley has a bull price target of $100, it also has a bear target of $15, should competitors cut market share down to 30%.

The other lead underwriter, Goldman Sachs, started coverage with a “Neutral” rating. A spokeswoman for Goldman Sachs, however, said the report is not available for distribution at this time.

The active safety feature of Mobileye’s technology plays into the 30,000 people who die in car accidents each year in the U.S., Michaeli said in a note. That number will likely increase as more older as well as more mobile-device distracted drivers get behind the wheel, he said. With 93% of U.S. accidents caused by human error, Michaeli also sees the technology as a draw to consumers as auto insurance premiums rise.

Barclays: Analyst Brian Johnson started coverage with a “Buy” and a $49 price target, calling Mobileye the “Intel inside” for driver-assistance systems on the basis that the company will have a strategic high ground in selling the software and chipsets to Tier 1 auto suppliers.

“Just as PCs and smartphones transformed computing, software will change the way we drive, and MBLY will likely be at the forefront of that change, significantly more so than any other player in the automotive universe,” Johnson said in a note.

Raymond James: Analyst Tavis McCourt started coverage with an “Outperform” rating and a price target of $46. In a note, McCourt said Mobileye’s multi-year growth trajectory is based on the company’s EyeQ technology as being more cost-effective than other sensors like lasers. One driver will be car makers competing against each other to get higher safety ratings for their models, he said.

“Much like the airbag, anti-lock brakes, and electronic stability control over the past few decades, we believe Mobileye’s monocular camera system is at the early stages of a 10-20-year mass adoption by the auto industry,” McCourt said.

Baird: Analyst David Leiker gave the only other “Neutral” rating on the stock after Goldman Sachs. While Leiker agreed with many of the virtues of the technology, “we are concerned with valuation and what seem to be overly aggressive expectations.”

Leiker said the primary risks to investors are the pace of adoption of the technology, market share expectations, and earnings estimates. The risk-reward profile to buy the stock becomes more attractive in the low $30s, he said. Leiker has a price target of $42 for the stock.

“We believe many ‘tech’ investors could grapple with understanding the pace at which the auto industry is able to adopt new technologies, both because of how regulations roll in and how the new vehicle cycle is an inherent damper on the pace of adoption,” Leiker said.

In other coverage, Wells Fargo, Deutsche Bank, William Blair, Dougherty & Co., and RBC Capital Markets all have Buy ratings on Mobileye.

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